Action on Corporate Governance

The CBI responds to the government’s green paper on corporate governance.

Responding to the Business, Energy and Industrial Strategy green paper on corporate governance, the CBI emphasised that there has never been a more important time to focus on building trust in business. Evolving corporate governance approaches and engaging with the debate on executive pay are a key part of this.

Responding to the government’s proposals to give shareholders an additional binding vote on executive pay, the CBI argued that any additional shareholder powers should be targeted at those firms that consistently make payments that investors continue to regard as out of line with company performance.

The CBI recommended the development of an ‘escalation mechanism’, whereby companies that lose the advisory vote on pay or receive >25% dissent on this resolution for two consecutive years should be required to put their policy to a binding vote at the following AGM.

On the government’s proposals to require firms to disclose the pay ratio between CEOs and the average worker, CBI expressed concerns that without sufficient context, these figures could potentially provide misleading information to an already understandably charged public debate. If intent on delivering ratios, the government should abide by the key principles of including context, focus on the UK workforce and making them simple to produce.

Business were also clear that mandating a single approach to strengthening the stakeholder voice in the boardroom, for example via direct board representatives or extending NED responsibilities, could risk stifling creativity and existing best practice. The CBI’s proposal recommended firms should report on their efforts to engage with stakeholders to ensure they are able to build on the vehicles most appropriate for them.

The green paper also included proposals to extend the corporate governance rules for PLCs to private companies. In its response, the CBI argued that the government’s intentions would be best served by efforts to raise corporate governance standards among all large private companies to the best practice standards already demonstrated by many privately-held firms. The CBI encouraged the government to measure its approach to private companies against several key tests – proportionality; avoiding duplication and creating a tailored approach.

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